tv First Business FOX January 26, 2010 4:30am-5:00am EST
senate, how adding another republican could impact the president's plans from financial reform to health care. >> a new movie highlights how technology is trading the climate on the trading floor at major stock exchanges. >> our expert tackles outrage over the handle of the financial crisis. it's all in today's "first business." >> you're watching "first business," financial news, analysis, and today's investment ideas. >> good morning. everyone. thanks for joining us. stock markets fall into negative territory just as we begin a jampacked week full of data and the federal reserve meeting on interest rates that begins tuesday. the decision comes on wednesday. the fed is expected to hold
rates close to zero. >> that's not all. we have the state of the union, plus earnings from microsoft and apple. >> ben bernanke's nomination for a second term still up in the air. secretary of state tim geithner testifies this week. >> will ben bernanke have a second term as head of the fed? two more senators said they would vote against him. the senate needs 60 votes to confirm bernanke. his current termspires on january 31st. the senate majority leader is unclear if bernanke can pass the test in the full senate, which
if the senate votes before january 31, donald cohen could assume the top position. >> let's check in with ben liechtenstein. do you think the bear sentiment in stocks will continue this week? >> unfortunately i do. once we approached the level of 1126, we opened the doors for the slide. that's what we saw friday afternoon, the high envelope selloff. getting the market below 1100, and the market selling off with high activity coming into the closing bell there, right now there's a major level of support down at 1080 in the s&p's. the traders are looking to find strength and gain confidence possibly on a bounce off of that
level. >> so far, it seems the selloff has been orderly. there's been no panic involved. >> it was a 3-day sell off for the most part last week. whether you chalk it up to concerns as far as greece, whether testimony from obama thursday, i think it was, or the technical aspect of looking at things and the breach of support levels down on friday, it was somewhat relatively subdued. one thing i like to focus on, there's always the kind of silver lining. in this case, one step back, two steps forward is healthy for the market. the question is however is the step back going to be. >> this week, home prices fell, friday, the g.d.p. estimate. >> ice all of those numbers in addition to it's a very technically focused market right
now. we're keeping on eye on that level. between 1080 and 1100, that's the number we focused on in september and november, everything that we just mention jude thank you very much. ben liechtenstein. >> lawmakers in congress are gearing up for financial reform and health care. congress is more divided after the special election in massachusetts gave republicans an extra seat in the senate. dick simpson what about professor at the university of illinois at chicago is here on the show. welcome. >> thank you. >> it's 41 republicans now, 57 democrats, two independents. this power shift means there is a possibility for more deadlock in the u.s. senate, right? >> yes. it takes 60 votes in the u.s. senate to be able to stop a filibuster. anytime the republicans really care enough, they can block the
legislation. if they get united, they keep all that you are 41 votes, and they're willing to filibuster. >> there is going to be a financial reform fight this year. president obama unveiled new restrictions he wants. there is a chance he may not get what he wants as far as new restrictions on banks. >> it depends on the attitude of the public on that one. the other restrictions, the consumer protection parts of that, there's bipartisan support for, so that section should go through. i think the democrats can bring so much pressure to bear on the republicans, because of the outrage at banks, it will go through, but not as introduced. there has to be compromise now that the republicans have new strength in the senate. >> there is so much pop list
anger over banks. how could that impact their standing with the american people if they vote for reform. >> the senate is slated to have more senate seats in the off year in november. if they take the wrong side on issues between now and november, and if they're on the wrong side of job creation, for instance, new legislation that was introduced, they could hazard what they should have isa much stronger position in congress. it's going to be a divided bipartisan congress. >> republicans are in a position to block final votes on health care reform, right? >> yes, there are two options being thought about in washington at the moment.
one is to let the house pass the senate bill, even though a lot of people in the house don't like aspects of the senate bill, and then the new senator wouldn't get a vote. they would have to come back in a year and fix it, but they might do that. the other option is the president is talking about a scaled down health plan targeted more towards insurance reform, and maybe some cost savings, and wouldn't enact all the parts of the 1,000 page health bill that's pending in the house currently that has passed in one version or another in both houses. to get a house committee to come to an agreement, and get crossovers like olympia snow to vote for it, that will be decided in a couple of weeks. >> thank you so much. that will be interesting to watch it play out. >> on wednesday, secretary treasury tim geithner will be in
the hot seat. lawmakers want to know why the new york federal reserve told a.i.g. to keep quiet on the details of its bailout, including how $62 billion in taxpayer money would be distincted to a.i.g.'s counter parties to settle contracts with banks like goldman sachs. tim geithner was president of the new york federal reserve when the bailouts happened and when the email exchanges took place between the fed and a.i.g. tim geithner had no knowledge of the emails. >> 450,000 pages of documents are being poured over after being handed over by the fed. >> coming up on monday's economic calendar, we've got existing home sales. for earnings, we're watching for
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documentary called "floored." it focuses on the shift from scrappy trading in the pits to sophisticated trading by clips. >> the biggest pits in the world are here in chicago. it's a very competitive environment. the guy lost his cool, and bit the guy in the nose. >> it's the tough, brawling side of trading rarely openly talked about until now. we caught up to director james allen smith, recently in chicago, promoting the documentary. he first started working on "floored" in 2006. >> we learned along the way, and spent more time and money than we ever thought we would. >> how much money, he won't say, although in the documentary, money plays a lead, featuring the gripping moments where
traders risk it all, win or lose. >> the feeling of despair where oh, my god, i've lost everything, hug my kids, that kind of kept me going. it's like i can't just give up now, because they're depending on me. >> emotions run high as it moves from open outcry in the pit and on to screams in the offices. >> we had as much as 500 people in the pit in the 80's. now there may be 50 guys. a lot of the business has gone to electronic trading. >> i hate email. i hate computers. i can't win. i cannot beat this computer. each one of those people has so many stories to tell. i couldn't even begin to start to tell some of their stories. what this film is is it's what i saw. >> and what smith saw was reality, according to chicago
trader andrew keene. >> i'm definitely a big risk trader. we had 15 people in my pit a year ago, and now there's basically me and one other person. >> technology is not just affecting what's happening in the trading pit. >> we had a heart surgeon in the audience the other night. he said you know, when we used to operate on guys, we would crack the whole chest open, and i would hold the heart in my hands. he said now we're in the other room with a joy stick and a camera. he said a lot of my buddies couldn't make that change, and it's the same story. >> keene shares the story of money on the line. >> you've got to figure out when you just want to get out of it. you can't look at your losses, get out of it and move on to the next trade. you're only as good as your last trade. >> in some cases, that last trade sometimes leaves traitors floored. he's getting mixed reviews to
answer viewer questions. why did ben bernanke force banks to take 5% tarp money when they had access to half% money at the discount window. there's no limit on how much or how frequently they can bore re, and the borrower's identity is never disclosed. >> i think the easiest way to explain this is that the first tenant you learn is liabilities equal assets and equity. borrowing from the feds window ace liability. it might be cheaper money, but one helps you grow an institution, because you're allowed to leverage your equity, and the other is borrowing that you use to make one loan, and
you can above row against the equity and make 10 loans. >> if they did get so much equity from the tarp fund, banks still did not use that leverage to make more consumer loans, though. >> no, they didn't. then we get into regulations of banking, and they need a certain amount of equity to exist, otherwise they're taken over by the regulators. they used tarp funds as a cushion to write down the loans and reserves they needed for the books. >> it was supposed to be possible for banks to start selling toxic assets. it's winter, and still no program. last spring, accounting rules were relaxed allowing banks to value those assets at much higher levels creating paper profits where none actually exist. the formerly toxic assets are
now geese laying golden eggs, and they would never part with them. what do you think? >> it's a very distressing point that he raises, the public private partnership. really, it's a divergent between buyers and sellers. the buyers know the assets. the sellers might recognize that they're 50, but because of accounting rules counting them at 70. there is too much disparity between where you could sell them and where somebody would buy them. the private partnerships didn't work. nobody is going to pay 50 cents for something worth 20 cents. >> is there any way to know the actual value, then? >> at some point, you cannot have temporarily impaired. we're going on two years now that we're saying it's teary. at some point, you have to say appraisals don't count, where can you sell the assets. when you say they're valid at 20
cents, that's the value. >> let's get to newt restrictions on banks president obama has proposed, one that traditional banks cannot own hedge funds, private equity funds. it has to go through congress, it has a long way to go. if it is passed, what effect would it have on banks and their earnings potential. >> it would reduce their earnings potential. that's where earnings are coming for 2009, because the markets dropped down to six and came back to 10. that's in trading profits and hedge funds profits. you'll probably see the bigger like morgan stanley because of tarp give that up status. i don't think they're going to give up on hedge funds and trading firms. the other part of that, which i think is your next question. >> is not that it created the cries. >> it was one issue in the crisis, but that's not what
stutnd equities. the volatility index has made huge gains of late. about a week and a half ago, the vix was at 17. it shot up to 27. what does that mean? >> the uncertainty is back in the marketplace. we see elevated risk parameters at people come in to try to cover up. huge volume in the vxx, the short term etn traded, volume
exploded last week. once we broke through 20, we saw the vix elevate. the s&p we saw break below 1114. it just kept feeding on itself. >> the vix can abgreat predictor. are traders looking at this as a buying opportunity as the market continue to say tumble, or is this really a harbinger of something really horrible to come here? >> that's a great question. i'm not sure i have the answer. just the culmination of news items, the earnings are coming in pretty good, but not as high as what people probably were expecting, and that was disappointing news for the market. there's a lot more built into the market, obviously, than what was being shown. we're seeing that, you know, come off, we're seeing the market come off because of the
earnings expectation being too high, and president obama coming after the banks is affecting the market, and also other news items potentially for this week. >> enough to make people unsettled. >> absolutely. >> have a great todaying day. >> thank you. >> that's it for today's show. we'll have a full viewer mail segment coming up this friday. we need to hear from you. tell us what you think about action in congress, the economy, bailouts, or whatever else is on your mind. call us or email us at firstbusinessx.com. see you tomorrow.